I just read a highly interesting article in Reuters written by James Kelleher about Caterpillar. Because there were some quotes in the article by Caterpillar executives, the article quite necessarily had to have the “blessings” of Caterpillar.
The article pointed out that Caterpillar figures its 178 independently owned businesses (dealers) are “missing out on somewhere between $9 billion and $18 billion each year in easy to capture revenue” . . . primarily in the area of product support. Strange as it may seem the farm equipment industry received similar information 25+ years ago when Stu MacKay performed an “in-depth” survey of the farm equipment customers and reported that 90% of the farm equipment dealers service business was lost through a lack of service marketing . . . and that the major players at that time were leaving in excess of $8 billion (that’s a b) on the table. Stu later did an extensive study of product support in the construction industry and came up with very similar numbers.
Back in those days the computer
Years ago, the service department was referred to as the black whole of the dealership and the only (assumed) value of the department was to handle set-ups and warranty. Seldom was it recognized as a true profit center capable of covering all the dealership’s fixed overhead and variable selling expenses, by providing the dealership a 100%+absorption rate.
For years we have attempted to point out to equipment dealers this one extremely important and basic fact: When it comes to the equipment dealer’s parts and service, the customer has a choice! They have a choice to go elsewhere to have their equipment serviced. Therefore, it is extremely critical that the equipment dealer body recognize this point and begin to market the quality of the dealership’s service long before the sale is made, during the selling process and, continually after the customer has departed the dealership after the sale has been consummated.
Fortunately, this situation is slowly beginning to change. Dealers are beginning to figure out that as a profit center, the service department is most likely to carry the highest margins of any department within the entire dealership. With major manufacturers beginning to recognize the value of service sales and profits and absorption rate, maybe more and more dealers will begin to search out and discover their unrecognized opportunities.
Dealer principals stop reading, right now, pull out your financial statement and look at two numbers: 1) your parts sales and, 2) your service sales. If the ratio of these two numbers is out of whack you will know immediately that you have a problem. I pointed out to a dealer that his service sales were less than 15% of his parts sales and told him he had an unrecognized opportunity and that his competition was eating his lunch! His reply . . . “I don’t have enough technicians to take on more of a work load.”
Most equipment dealers have what we will refer to as a computer overload. Your managers and personnel have more reports available on today’s computers than they can possibly use and complain that they don’t have the time to make use of these reports.
Customers have a choice: We have stated this numerous times and normally spend five minutes to prove to a typical equipment dealer that he has hundreds of customers who don’t buy service from the selling dealer. Do you know, and if you do know the report that provides you this information, do you use that report in an attempt to recognize your opportunities? If you don’t use the report then you will continue to have unrecognized opportunity! It is called the SALES RANKING REPORT and lists all sales by category and in descending dollars of sales.
Back to the article which states that too many of the 178 Caterpillar dealers “are not tapping into the wealth of real-time customer data now at their fingertips” . . . Ask yourself is this happening in your dealership, how many customers do I have out there in our market who are buying our product but not our quality service? How many dollars in sales and profits are we failing to capture in service each and every year? How do we focus, how do we attack and pick this low hanging fruit known as your unrecognized opportunity?
Some successful equipment dealers recognized these service opportunities years ago and developed a secondary sales force dedicated to marketing the dealership’s product support. Too many dealers ignored the opportunity and either “sat back and waited” for the business to come back to them or did nothing to change the status quo of their business. The customers continued to grow their repair business or took their business elsewhere.
Many times manufacturers and suppliers “attempted” to get their dealers interested in getting this business back to the dealership, but too many dealers believed that they did not have to pay for business they hopefully would get anyway and it would take too much time to do so.
As we have discussed in the past, there are two ways for the dealer to view their opportunity . . .
1) Service contribution to total sales is measured by dividing your total service sales by your total dealership sales and viewing anything below 10% as an extremely meager effort. You can compare yourself with other dealers within your industry by going to the industry Cost of Doing Business Study.
2) Service market share is measured by dividing the number of customers who have bought equipment (in the past five years) from the dealership by the number of those customers who are currently purchasing their service from your dealership. In other words, if you have 100 customers and only 30 are purchasing their service from your dealership, you have a 30% market share and the 70% who go elsewhere for service is your unrecognized opportunity to increase your service sales and profitability.
It is just as important to know who is not buying your product support as it is to know who is buying your product support! Once you know who is not buying from you, you can then ask the question – why?!
Customers buy equipment to do a job, a job that supplies them with a source of income, a living. But do they suffer buyer’s remorse after they purchase their equipment from your dealership? Is it possible there is a doubt in their mind that your dealership and employees will not be available to take care of them after the sale has been consummated? The customer’s # 1 fear is unscheduled downtime or having to shut down a job they are performing, cutting off their source of income.
We coined the phrase unknown opportunity because as a general rule most equipment dealers are unaware of this opportunity and what it could mean to them if they decided to shift the dealership’s market focus slightly towards their product support sales and recognize the profitability of those same sales.
Contact your systems provider and ask them whether or not your system has the ability to tell you what a customer buys from you on a yearly basis. If the system provider tells you yes, which will be 99% of the time, then ask your parts manager, service manager and branch manager whether or not they make use of these reports. If the answer is no, then it is up to you to turn a problem into an opportunity.
You will prove to yourself that: 1) there are a whole lot of customers out there who are servicing their own equipment, possibly because you have never asked for this business, and 2) there are a whole lot of “other” competitors working on the equipment you have sold, i.e. independents, shade-tree technicians, other in-line dealers and/or other OEMs. This is your service competition and most equipment dealers have little knowledge of this competition. You may have four or five competitors for the equipment you sell and you know everything there is to know about their marketing strengths and weaknesses, but what information do you have about your product support competition?
With one client we uncovered the fact that the dealer had a total list of well over 1,100 customers who were buying nothing more from the dealership but a whole lot of parts. The dealer now has something he did not have previously . . . a fairly complete listing of his product support competition and a complete listing of prospects for service sales.
If this report does not prove to you exactly what is going on within your area of responsibility, if this report does not clearly point out to you your dealership’s unknown opportunities, if this report does not provide your dealership with increased product support sales at an increased profit, then nothing more can be said.
Back to the article with a word of warning to Caterpillar and to any other manufacturer or dealer who is intent about going out and tapping the huge market we refer to as an “unknown opportunity.” It is a great opportunity but there is one serious problem to consider. Where are the dealers going to find technicians to perform service for customers when we have a truly significant shortage of trained, quality technicians? If someone is considering going after this great profit opportunity think about how you intend to find quality technicians to allow you to service what you sell.
John R. Walker is president of Aftermarket Services Consulting Co. Inc. E-mail firstname.lastname@example.org to contact John.